J.P. Morgan Launches Strategic Beta ETF

 J.P. Morgan Asset Management has launched its first exchange-traded fund (ETF), JPMorgan Diversified Return Global Equity.

The J.P. Morgan ETF is designed to provide market participation with lower volatility, and starts with the premise that traditional market-cap weighted and single-factor indices expose investors to excessive risk concentrations and a systematic bias toward overvalued securities. Therefore, the fund seeks to reallocate risk by weighting stocks according to four factors: value, size, momentum and low volatility. Research has shown that these factors, when combined, may offer better risk-adjusted returns.

The fund is managed by an experienced J.P. Morgan team, with 18-year veteran Beltran Lastra as the lead portfolio manager. Lastra’s team currently manages $12 billion in asset under management globally as of April 30, 2014.

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“We believe that J.P. Morgan has unique investment insights and global capabilities that will be attractive to ETF investors, and this product is an important first step in delivering those capabilities,” says Robert Deutsch, head of the ETF business for J.P. Morgan Asset Management, based in New York. “J.P. Morgan has grown to one of the largest global mutual fund managers and our ETF offering will be a natural extension our product lineup.”

JPMorgan Diversified Return Global Equity is a strategic beta, developed market equity ETF that tracks an index co-developed with FTSE Group, the FTSE Developed Diversified Factor Index. According to Deutsch, the fund represents the next generation of strategic beta ETFs. More institutional investors are using strategic or smart beta ETFs, many in an effort to reduce portfolio volatility (see “Smart Beta ETFs Can Be Used to Reduce Volatility”).

“We are delighted that J.P. Morgan has chosen FTSE as the index provider for launching their new ETF business in the United States,” says Jonathan Horton, president of FTSE North America. “Electing to work with FTSE to co-develop the methodology behind this ground-breaking multi-factor index series is a great example of combining J.P. Morgan’s research and investment process know-how with our index expertise creating customized solutions in partnership with clients.”

BlackRock Revamps LifePath Strategies

BlackRock has added two new strategies to its series of LifePath target-date funds (TDFs) that apply principles from the firm’s latest research into glide path investing.

The two new strategies are LifePath CoRI, which focuses on the need to meet participant goals for sustainable retirement income, and LifePath Dynamic, which takes active positions relative to the LifePath Index—described by the firm as “BlackRock’s hallmark TDF product.” The new strategies offer more flexibility and customization to plan sponsors and financial advisers working with retirement plan participants, Chip Castille, a BlackRock managing director and head of the firm’s U.S. Retirement Group, tells PLANADVISER.

The LifePath CoRI strategy aims to increase the certainty that a participant will be able to secure a guaranteed lifetime income at or in retirement, Castille explains. LifePath CoRI incorporates allocations to funds that track BlackRock’s CoRI Indexes, which in turn track the expected median cost of lifetime income for investors with various retirement target dates. The indexes also enable pre-retirees to easily translate savings balances into lifetime income once they turn 65.

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The LifePath Dynamic strategy is designed to take advantage of time-varying  investment opportunities and fluctuations in long-term, forward-looking capital markets expectations. To that end, LifePath Dynamic incorporates a more “valuation-aware” approach to the structure and direction of the equity allocation glide path, Castille says. By investing in a unique combination of active and passive underlying components, the dynamic strategy intends to deliver alpha across almost all market cycles in an efficient, risk-controlled manner.

Castille says that changes are also being made to BlackRock’s LifePath Index. In short, BlackRock is implementing a glide path more closely tailored to embrace the longer-term opportunity for growth created by investors expanding longevity, he explains. The most notable changes will be an increase in equities for people earlier in their careers, Castille says. Individuals will hold more equity exposure for longer than they do under the current LifePath construction. Approximately 30 years from retirement, LifePath’s equity exposure starts to decrease very slowly, about 2% each year, he says. Then, the glide path closer to retirement is re-anchored at a new equity “landing point” of 40% (up from 38%), meaning the equity allocation is 40% at the date of retirement and remains constant throughout retirement, should participants remain in the fund.

Castille says these changes are the result of a robust research agenda focused on incorporating the latest economic theory and academic research into the firm’s TDF lineup. Sponsors and advisers are demanding products that take a more sophisticated view of investors’ risk tolerance and longer time horizons, he adds.

The changes are also important as defined contribution (DC) becomes even more predominant in the retirement planning space, Castille says. As this trend continues it becomes increasingly important to adequately address market risk, inflation risk and concerns around longevity, he says. 

A white paper explaining BlackRock’s various TDF strategies and glide path investing generally is available here.

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